The digitization of SMEs is the key to their integration into business supply chains
Enabling large enterprises to support small, medium and micro enterprises (SMMEs) can successfully stimulate job creation and achieve sustainable economic growth in South Africa. The small business sector is critical to creating an inclusive economy and better lives for previously marginalized people.
Hepsy Mkhungo, CEO of One Linkage | image provided
As large organizations are in a hurry to support small businesses as part of their compliance obligations or adherence to the Broad-based Black Economic Empowerment (BBBEE) policy, the value of supporting SMEs by integrating them into the supply chain should go beyond the simple regulatory check mark. .
Support for SMMEs extends to supporting the economy of the country as a whole and facilitating the creation of a more competitive and agile market which in turn promotes employment in the formal and informal sectors of the economy. economy. This is imperative for economic inclusion.
Companies increasingly recognize that they are unable to achieve their own business goals without the inclusion of small businesses, especially as large businesses take advantage of the masses of consumers who in turn need jobs to earn income.
According to the Johannesburg Business School, SMMEs are the backbone of most economies and account for about half of global gross domestic product (GDP) and 60-70% of employment. Closer to home, SMMEs represent around two-thirds of the formally employed workforce on the African continent. In South Africa, the small business sector employs around 47% of the workforce and generates around 20% of the country’s annual GDP.
Essential role in the value chain
These statistics highlight the critical role that SMMEs play in the entire business value chain. This should at least prompt many companies to seriously reconsider the value they place in supporting small businesses through supply chain development.
In most cases, SMME’s support for large companies is in the area of purchasing. If procurement opportunities are made available to SMEs, large companies can expect these small companies to inject innovation, flexibility and creativity into the supply chain. A diverse supply chain enables large enterprises to benefit from the ability of SMEs to meet operational and business challenges with an agility and flexibility that large organizations inherently lack. Generally, the nature of small businesses allows them to work efficiently with reduced budgets and reduce costs in terms of service delivery and execution.
The digitization of empowerment tools, solutions and platforms offers smarter ways to achieve integration, even in emerging markets such as South Africa, where the digital divide and online access remain a barrier to achieving integration. many small entrepreneurs. However, the digital transformation is advancing and even after Covid-19 there will be no return to work offline.
Need to go digital
With digitization playing an increasingly important role in the enabling space, companies can no longer ignore the need to digitize their solutions and deliver digital technologies to support small businesses. In South Africa almost all small businesses have adopted some kind of technology and most are now spending budgets on it.
According to a study by the global small business platform Xero, South African small businesses have made significant strides towards adopting new technologies, with 97% reporting investing in new technology in 2019. In addition, the study shows that 53% of companies have discovered that the adoption of new technologies has led to a significant increase in their profitability.
Not without challenges
When challenges arise with integrating small businesses into the supply chain, it behooves companies to respond by examining their environmental, social and corporate governance practices and aligning them with the actual needs of SMEs.
The biggest challenge that typically arises with integrating SMME into the business supply chain comes from large organizations typically working in silos, resulting in a lack of collaboration between business divisions. On the one hand, purchasing departments are often reluctant to hire SMEs due to uncertainty about their ability to deliver and achieve objectives. On the other hand, sustainability teams are responsible for supporting small businesses with skills development, training and financing to help them build infrastructure and respond to sourcing opportunities that may become available.
Offset scupper opportunities
The silo mentality means there is a mismatch between these two departments, and sourcing opportunities for SMMEs often do not materialize. Small businesses often find themselves in a loop where they continually grow, but there is no conversion of that development. Many come to a point where they no longer want to participate in these programs without understanding where the opportunities lie. This makes it very difficult for SMMEs to have confidence in the process.
Another important challenge that companies face is of a technical nature. The simple fact is that established enterprise resource planning systems are not conducive to small business integration.
While these systems are open to anyone to register, they are also very complex, making it difficult for small businesses to achieve what is required. SMEs often struggle to find the opportunities open to them and there is no consolidated platform for companies to list the opportunities that SMEs can apply for.
Businesses should be encouraged to work with enabling partners to co-create solutions that work for them. They have to adopt the mindset that there are no ready-made solutions. Everything can be personalized, so it is important that they look beyond what they are currently doing and genuinely support SMEs through supply chain development.